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Muni Bonds, ICE Standards, IBM Antitrust, Finra: Compliance

Aug. 4 (Bloomberg) -- Wall Street banks setting up bond sales for U.S. states and cities would be required to tell public officials about potentially costly risks and conflicts of interest in the deals under proposed rules.

The Municipal Securities Rulemaking Board, which writes regulations for banks that work in the tax-exempt debt market, said yesterday that it asked the U.S. Securities and Exchange Commission to approve the proposed rules placing greater disclosure requirements on bond underwriters.

The move is part of an effort to reshape regulation of the $2.9 trillion municipal-securities market after the 2008 financial crisis. Since then, state and local taxpayers have been stuck with billions of dollars in unexpected costs because complex bond deals, pitched as money-savers, backfired.

The rules would require banks to disclose all “material risks” of bond financings, including the floating-rate securities coupled with interest-rate swaps that once flourished. Banks also would have to disclose potential conflicts of interest, including incentives they have to recommend such transactions, payments they may get from other parties in the deal and whether banks are betting on derivative contracts that only pay off if the borrower defaults.

The rulemaking board yesterday told financial advisers that they may face the regulations placed on broker-dealers if they arrange private placements of securities sometimes characterized as bank loans, a growing niche in the public-finance market.

In addition, the U.S. Commodity Futures Trading Commission is drafting rules that would force banks that pitch interest-rate derivative deals to also disclose details about the risks, act in the customers’ best interests, and ensure that they have the financial wherewithal to handle the potential impacts of wrong-way bets.

For more, click here.

Compliance Policy

ICE Clear Credit Lowers Member Standard Before CFTC Rules

Intercontinental Exchange Inc., owner of the world’s largest credit-default swaps clearinghouse, lowered its membership standards before U.S. rules designed to expand access to the service.

ICE Clear Credit, the clearinghouse formerly known as ICE Trust that was re-named last month when it came under Commodity Futures Trading Commission and Securities and Exchange Commission oversight, now requires broker dealers and futures commission merchants to have $100 million in adjusted net capital and 5 percent of their customer funds as excess net capital, according to its rules. Previously, $5 billion in minimum net worth was required to be a clearing member.

The clearing member standards have pitted the largest banks such as JPMorgan Chase & Co. and Morgan Stanley against smaller independent brokers Newedge USA LLC and MF Global Holdings Ltd. A trade group representing smaller firms has lobbied Congress and regulators since last year for access to derivatives clearing. The largest banks have contended that clearing members have to be large enough to absorb losses if one of them defaults and must have the market ability to take on swaps positions.

The CFTC has proposed that firms must have a minimum of $50 million in capital to become a member of swaps clearinghouses. The regulator hasn’t yet completed that rule and is expected to do so before the end of the year.

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Salgado Rules Out Changes to Corporate Tax Rate by Cabinet

The Spanish government doesn’t plan changes to the rate of corporate taxes at cabinet meetings this month, Finance Minister Elena Salgado said at a news conference in Madrid yesterday.

The nation will press on with its announced fiscal program and will take steps to address its deficit at cabinet meetings this month, she told reporters.

China Considering Creating New Finance Regulator, Reuters Says

China is considering creating a ministerial-level department to manage its state-owned banks and non-bank financial institutions, Reuters reported yesterday, citing two unidentified people.

The move will strengthen central government’s supervision over the lenders, Reuters said.

Compliance Action

IBM European Antitrust Complaints Dropped by Three Companies

Three companies are dropping European Union antitrust complaints against International Business Machines Corp. over its mainframe computers.

T3 Technologies Inc. and Neon Enterprise Software LLC have or will withdraw separate complaints filed with the European Commission, IBM said in a regulatory filing last month. TurboHercules SAS has also withdrawn its complaint, said Carina Oliveri, a spokeswoman for the company in Paris.

The Commission declined to comment on the status of its investigation into allegations IBM linked sales of its mainframe computers to its software and that it discriminated against competing sellers of services for the computers.

IBM, the biggest computer-services company, declined to comment beyond its regulatory filing.

Austin, Texas-based Neon said in May that it settled its legal dispute with IBM and would stop selling its zPrime software and request customers to remove and destroy their copies. Two calls and two e-mails to the company yesterday weren’t immediately answered.

T3 withdrew its EU complaint in May after dropping an appeal to a U.S. court ruling dismissing its claims against IBM, according to IBM’s filing. T3 didn’t respond to a telephone message and e-mail to its Tampa, Florida offices.

The Commission opened two separate investigations into Armonk, New York-based IBM last year over possible anti-competitive behavior that may have blocked competition for rival mainframe software and on maintenance contracts for the systems by “restricting or delaying access to spare parts.” EU antitrust regulators often end investigations into companies after complaints from rivals or customers are withdrawn.

Lloyds Banking Posts Loss on Irish Loans, Insurance Redress

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, reported a first-half net loss after Irish bad loan provisions increased, funding costs rose and the lender set aside 3.2 billion pounds ($5.2 billion) to compensate insurance customers.

The net loss was 2.31 billion pounds compared with a profit of 596 million pounds in the first half of last year, the London-based bank said in a statement yesterday. That missed the median loss of 2.2 billion pounds estimated by nine analysts in a Bloomberg survey.

Lloyds, 41 percent-government owned, said its net interest margin, the difference between what it earns on loans and its funding cost, shrank to 2.07 percent from 2.12 percent in the same period of 2010. The shares slumped to the lowest in more than two years.

Lloyds’s funding costs are rising as Chief Executive Officer Antonio Horta-Osorio, 47, weans the bank off low-interest government loans and onto costlier wholesale funding. In June, the bank announced it was cutting 15,000 jobs to help reduce costs by 1.5 billion pounds, in addition to the 27,000 roles slashed since its acquisition of HBOS Plc in 2008.

For more, click here.

Deutsche Boerse, NYSE Euronext Face Antitrust Concerns

Deutsche Boerse AG and NYSE Euronext have indicated how they will seek to counter concerns submitted to European Union regulators by competitors and customers over their $9 billion merger.

The European Commission must decide by today whether to open an in-depth investigation of the buyout’s ramifications, which can last as long as 90 working days. Regulators will weigh complaints from the firms’ biggest customers, including traders, banks and brokers, that the combination may harm competition.

Gregor Pottmeyer, Deutsche Boerse’s chief financial officer, last week tried to allay concerns from the Association for Financial Markets in Europe that the exchanges won’t pass on a “fair share” of about 400 million euros ($572 million) in cost savings to customers, even as he said the exchange expects a formal EU antitrust complaint about the deal by October.

Two “strong arguments” on how customers will benefit from the business combination are savings from lower capital requirements for the combined company and cross-margining to reduce how much cash investors must post to clearinghouses to back their trades, Pottmeyer said on a July 29 conference call.

Regulatory approval is the last hurdle for the deal that would create the largest owner of equity and derivatives markets. Joaquin Almunia, the EU’s competition chief, said in March a longer probe into the “complex deal” is likely.

A series of planned exchange tie-ups around the world have run into regulatory problems this year.

For more, click here.

Apple, Google Data Collection Violate Law, Edaily Says

Apple Inc. and Google Inc. violated South Korean law by collecting location data in the Asian nation, Edaily reported, citing the Korea Communications Commission.

Apple was fined 3 million won, according to Edaily.


Playboy Founder’s Son-in-Law Settles SEC Inside-Trading Suit

The son-in-law of Playboy magazine founder Hugh Hefner settled allegations of insider trading in Playboy stock, agreeing to resolve a lawsuit by the U.S. Securities and Exchange Commission for $168,352.

William A. Marovitz, who is married to former Playboy Enterprises, Inc. Chief Executive Officer Christie Hefner, made $100,952 on the trades, according to the SEC complaint filed yesterday in federal court in Chicago.

An attorney and former Illinois state senator, Marovitz, 66, has been married to Hefner since 1995, according to the complaint. Hefner led Chicago-based Playboy from 1988 to 2009.

“Mr. Marovitz has no comment on the complaint or the settlement agreement,” his attorney, Jim Streicker of Chicago, said in a telephone interview. “He lost substantial sums of money on his investments in Playboy over the years,” he said.

While Hefner’s husband didn’t admit or deny the SEC’s allegations, he consented to a court order barring him from further violation of the SEC’s regulations, according to the commission’s statement. The settlement is still subject to court approval.

The case is Securities and Exchange Commission v. Marovitz, 11cv5259, U.S. District Court, Northern District of Illinois (Chicago).

Ex-UBS Client Greeley Pleads Guilty to Hiding $13 Million

A former UBS AG client pleaded guilty to filing a false U.S. tax return that concealed more than $13 million in two Swiss accounts, according to the Justice Department.

Robert E. Greeley admitted in federal court yesterday in San Francisco that he filed a tax return in 2008 that failed to disclose two UBS accounts set up in the names of Cayman Islands entities.

U.S. District Judge Charles Breyer set Greeley’s sentencing for Nov. 9. Greeley agreed to pay a civil penalty of $6.8 million for failing to file a Report of Foreign Bank and Financial Accounts form.

Greeley, a resident of San Francisco, was a client of former UBS banker Renzo Gadola, who pleaded guilty Dec. 22 in federal court in Miami. Greeley is one of more than two dozen former UBS clients accused of tax crimes since 2007.

The case is U.S. v. Greeley, 11-cr-374, U.S. District Court, Northern District of California (San Francisco).

Ex-Mizuho Investment Banker Charged With Insider Trading

Thomas Ammann, a former investment banker at Mizuho International Plc, and two women were charged with insider trading in shares of OCE NV, a Dutch printing-equipment maker.

Ammann and Jessica Mang were charged last week, and Christina Weckwerth, a German national, was charged this morning at a London court, the U.K. Financial Services Authority said today. Ammann was charged with three counts of insider dealing, Weckwerth two counts and Mang with one count. Ammann and Weckwerth were also charged with money laundering, and the ex-banker is also facing two counts of encouraging insider dealing.

The charges relate to trading in OCE shares between February and November 2009, the FSA said. Canon Inc. agreed to buy OCE in a 730 million-euro ($1 billion) deal in November 2009. Mizuho acted as the financial adviser to Canon, the Japanese imaging company, in the deal, according to data compiled by Bloomberg.

The FSA, which hadn’t brought an insider-trading case until 2008, is currently prosecuting 13 other individuals for the crime.

Mizuho said in a statement the FSA hasn’t alleged any wrongdoing by the bank and no actions are being taken against it.

The trio were released on bail and are scheduled to appear again before a London judge on Aug. 23. A lawyer for Ammann didn’t immediately respond to a request for comment.


Levitt Says Overhaul of SEC Would Cripple Investigations

Arthur Levitt, former U.S. Securities and Exchange Commission chairman, said a proposal to restructure the SEC would “emasculate” the commission. He said he believes the reorganization “is prompted by constituent pressure, mostly by the financial community to shut down the SEC’s efforts to inspect and examine broker-dealers.”

Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Stefanak Says Dodd-Frank Changes Hedge-Fund Industry

Curtis Stefanak, counsel at SNR Denton LLP, discusses his view that hedge-fund managers, like billionaire George Soros, are returning money to outside investors in an bid to avoid changes in regulation under the Dodd-Frank law.

Stefanak spoke with Erik Schatzker and Deirdre Bolton on Bloomberg Television’s “InsideTrack.”

For the video, click here.

Comings and Goings

Bank of America’s Krawcheck Elected to Finra Board

Bank of America’s Sallie Krawcheck and Tritaurian Capital Inc. Chief Executive Officer Ken Norensberg will serve as industry members of the Financial Industry Regulatory Authority board of governors, the brokerage regulator said in a statement.

Krawcheck, Bank of America’s president of global wealth management, was elected to represent large firms and Rosenberg was reelected for smaller brokerages, Finra said yesterday in a statement announcing results of voting at its annual meeting in Washington. Governors on the 22-member board serve three-year terms and may not serve more than two consecutive terms, Finra said.

Google Says It Hires FTC Intellectual Property Expert Michel

Google Inc., under investigation by the Federal Trade Commission for its dominance of Internet searches, said it hired Suzanne Michel, one of the commission’s top intellectual property officials.

Michel, 49, is leaving her post as deputy director of policy planning at the FTC, where she worked for more than 11 years on patent antitrust issues and patent policy. She will join the company’s legal team, Aaron Zamost, a Google spokesman, said, declining to elaborate on what her responsibilities will be.

Cecelia Prewett, an FTC spokeswoman, declined to comment on Michel’s move.

For more, click here.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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